WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) has taken decisive action against Navy Federal Credit Union, citing the institution for imposing unlawful overdraft fees on its customers. Between 2017 and 2022, Navy Federal reportedly levied surprise overdraft charges on specific ATM withdrawals and debit card transactions, even when account balances appeared sufficient at the time of purchase.
The CFPB is mandating that Navy Federal reimburse affected consumers over $80 million and cease the practice of charging these illegal overdraft fees. Furthermore, a civil penalty of $15 million is to be paid to the CFPB’s victim relief fund. This penalty marks the largest sum ever recovered by the CFPB from a credit union for unlawful activities.
CFPB Director Rohit Chopra stated, “Navy Federal illegally extracted tens of millions of dollars through junk fees, impacting even active duty servicemembers and veterans. The CFPB’s dedication to eliminating illegal junk fees in the market has saved American families billions of dollars.”
Navy Federal Credit Union, headquartered in Vienna, Virginia, stands as the nation’s largest credit union. It primarily serves active-duty military personnel, veterans, Department of Defense civilian employees, and their families. As of December 2023, Navy Federal boasted assets exceeding $171 billion and a membership base of over 13 million. Its global presence includes 355 branches, with 175 located on or near military installations and 26 on overseas military bases.
Navy Federal’s “OOPS” and Overdraft Practices
Through its “Optional Overdraft Protection Service,” known as “OOPS,” Navy Federal imposed a $20 fee for the majority of overdraft transactions. This service generated nearly $1 billion in overdraft fee revenue between 2017 and 2021.
The illegal overdraft fees were applied in two primary scenarios. Firstly, customers were charged when making purchases with seemingly sufficient funds, only to incur overdraft fees if the account balance dipped below zero after the transaction officially posted, sometimes days later. These surprise fees amounted to an average of $44 million annually for Navy Federal. As early as 2015, regulatory bodies including the CFPB and the Federal Reserve had cautioned financial institutions against implementing these types of unexpected overdraft fees.
Secondly, when customers received funds via peer-to-peer payment platforms like Zelle, PayPal, and Cash App, Navy Federal’s systems indicated the funds were immediately accessible. However, the credit union failed to adequately disclose that payments received after 10:00 am Eastern (later revised to 8:00 pm Eastern) would not actually be processed until the following business day. Consequently, some customers who attempted to utilize these funds were then subjected to overdraft fees. This practice alone generated at least $4 million in fees for Navy Federal.
The CFPB determined that Navy Federal violated the Consumer Financial Protection Act by:
- Levying illegal, surprise overdraft fees on purchases made with sufficient funds: Charging fees to customers whose accounts showed adequate funds at the point of purchase, only to impose fees when transactions were processed at a later time.
- Imposing overdraft fees due to delayed peer-to-peer payments with undisclosed processing times: Presenting incoming payments from services like Zelle, PayPal, and Cash App as readily available, while omitting the disclosure that payments received after specific cut-off times would not post until the next business day, yet still charging overdraft fees to customers attempting to use these seemingly available funds.
Enforcement Actions and Consumer Relief
Under the Consumer Financial Protection Act, the CFPB is empowered to take action against institutions that violate consumer financial protection laws, including engaging in unfair, deceptive, or abusive acts or practices.
The CFPB’s order mandates the following for Navy Federal:
- Over $80 million in consumer refunds: Navy Federal is obligated to refund improperly charged overdraft fees to affected customers. This action aims to provide tangible financial relief directly back to consumers impacted by these practices.
- Ban on specific overdraft fees: Navy Federal is prohibited from charging overdraft fees in situations where sufficient funds were available at the time of the transaction but not at the time of processing. They are also banned from charging overdraft fees resulting from delays in posting funds received through peer-to-peer payment networks. This measure is designed to prevent future occurrences of these illegal charges and protect consumers from unexpected fees.
- $15 million penalty: Navy Federal is required to pay a $15 million civil penalty to the CFPB’s victims relief fund. This financial penalty serves as a further deterrent and underscores the seriousness of the violations.
The CFPB has prioritized addressing overdraft fees as part of its broader initiative to combat illegal junk fees. In January 2024, the CFPB proposed a rule to regulate overdraft loans more like credit cards and cap overdraft fees at a benchmark amount. A December 2023 CFPB report highlighted that many Americans are surprised by overdraft fees and do not anticipate incurring them. Furthermore, in 2022, the CFPB issued a circular clarifying that unanticipated overdraft fees are likely illegal.
Consumers who wish to file complaints regarding financial products and services can do so through the CFPB’s website or by calling (855) 411-CFPB (2372).
Individuals who believe their company has violated federal consumer financial protection laws are encouraged to report information to [email protected]. Additional information on reporting potential industry misconduct can be found on the CFPB’s website.
The Consumer Financial Protection Bureau is a 21st-century agency dedicated to implementing and enforcing Federal consumer financial law, ensuring fair, transparent, and competitive markets for consumer financial products. For more information, visit www.consumerfinance.gov.
